HOA Financial Statements Explained: How to Read the Balance Sheet, Income Statement and Reserve Schedule — and What Your State Requires (2026)
An HOA’s financial statements are a balance sheet showing what the association owns and owes by fund, an income statement or budget-vs-actual against the budget, and supporting schedules: bank reconciliations, a receivables aging and a reserve schedule. Most states require a year-end report to owners, and some require a CPA review or audit above a revenue threshold.
Key points
- A compilation presents management’s numbers with no assurance, a review gives limited assurance based on inquiry and analytical procedures, and an audit gives an opinion after the CPA tests evidence — three different products at three different prices.
- A Florida homeowners’ association with total annual revenues of $500,000 or more must prepare audited financial statements, and “[a]n association with at least 1,000 parcels shall prepare audited financial statements, notwithstanding the association’s total annual revenues” (Fla. Stat. 720.303(7)).
- In Washington, “[t]he financial statements of associations with annual assessments of $100,000 or more must be audited at least annually by a certified public accountant” (RCW 64.90.530(2), as amended by ch. 96, Laws of 2026, effective June 11, 2026).
- Every Arizona association must obtain an annual financial audit, review or compilation, completed no later than 180 days after the end of the fiscal year, with no revenue threshold at all (A.R.S. 33-1810 for planned communities; A.R.S. 33-1243(J) for condominiums).
- California requires a review of the financial statement, prepared under generally accepted accounting principles by a licensee of the California Board of Accountancy, “for any fiscal year in which the gross income to the association exceeds seventy-five thousand dollars ($75,000),” distributed to members within 120 days after the close of the fiscal year (Civ. Code 5305).
General information for board members, not legal advice. Check the statute and your governing documents.
Fund accounting: why there are two (or three) columns
An HOA’s statements are presented by fund because the money is not interchangeable. Fund accounting means keeping separate self-balancing sets of accounts for money that has different purposes — an operating fund for the year’s ordinary expenses, a reserve fund for the replacement of major components, and sometimes a third fund for a special assessment levied for a specific project. Each fund has its own assets, its own liabilities and its own equity, called a fund balance.
The reason this matters is arithmetic, not bookkeeping theory. Reserve money belongs to a roof that has not been replaced yet. Operating money belongs to this year’s landscaping bill. When a single-column balance sheet reports one cash figure and one equity figure, an association that has quietly spent reserve cash on an operating shortfall looks exactly like an association that has not. Two columns make it visible in one line.
That line is the interfund due to/from — a receivable in one fund matched by a payable in the other, recording that one fund holds cash belonging to the other. It is the entry that gets made when the operating account is short and the reserve account is not. There is nothing wrong with the entry itself; what is wrong is when it stays on the books, grows, and never gets repaid.
After years of auditing association financial statements, the first thing I look at on any monthly package is whether reserve cash is at least equal to the reserve fund balance. If it is not, the association has borrowed from itself, and the rest of the read is about how much and how long. Everything else — variances, aging, the check register — comes after that one comparison.
Some states put rules around that borrowing and some do not, so read your own act and your declaration before assuming a transfer is permitted. Where it is permitted, the board resolution authorizing it and a written repayment plan belong in the minutes, not in a spreadsheet nobody sees.
The HOA balance sheet: what it shows and the five things to check
The balance sheet shows what the association owns, what it owes and what is left over, at one date, in each fund. Assets are cash by account, assessments receivable, and prepaid items such as insurance paid for a year in advance. Liabilities are accounts payable, prepaid assessments — money owners have paid ahead — and any interfund payable. What remains is the fund balance: accumulated surpluses and deficits since the association began, not a bank account.
Here is a simplified illustration. The numbers are made up, and they are internally consistent so you can follow the checks below.
| Illustration only — not a real association | Operating fund | Reserve fund | Total |
|---|---|---|---|
| Cash — operating account | $48,200 | — | $48,200 |
| Cash — reserve account | — | $214,000 | $214,000 |
| Assessments receivable | $6,400 | — | $6,400 |
| Prepaid insurance | $3,100 | — | $3,100 |
| Due from operating fund | — | $2,500 | — (eliminated) |
| Total assets | $57,700 | $216,500 | $271,700 |
| Accounts payable | $7,900 | — | $7,900 |
| Prepaid assessments | $4,300 | — | $4,300 |
| Due to reserve fund | $2,500 | — | — (eliminated) |
| Total liabilities | $14,700 | — | $12,200 |
| Fund balance | $43,000 | $216,500 | $259,500 |
| Total liabilities and fund balance | $57,700 | $216,500 | $271,700 |
The interfund amounts drop out of the total column because the association cannot owe money to itself in a combined view. Within each fund, assets equal liabilities plus fund balance — that is what makes each fund self-balancing.
Five checks take about ten minutes a month and catch most of what goes wrong.
Cash agrees to the reconciliations. Every cash line on the balance sheet should equal the ending balance on that account’s bank reconciliation for the same date. If the two do not tie, nothing below them can be trusted.
Assessments receivable agrees to the aging. The receivable on the balance sheet should equal the total of the accounts receivable aging report. A difference usually means a credit, a write-off or a payment posted somewhere other than an owner’s account.
Due to and due from net to zero. In the illustration, the operating fund owes the reserve fund $2,500 and the reserve fund shows the same $2,500 as a receivable. If those two numbers are not equal and opposite, an interfund transfer was recorded on one side only.
Reserve cash is at least the reserve fund balance. In the illustration it is not: reserve cash is $214,000 against a reserve fund balance of $216,500. The $2,500 gap is exactly the amount the operating fund borrowed. That comparison is the fastest reserve-borrowing test there is.
Prepaid assessments sit in liabilities. Money paid for next year is not this year’s income. Booking it as income overstates the surplus and hides a shortfall that arrives in January.
The income statement and budget vs actual: three lines to read first
The income statement shows what the association earned and spent over a period, and in an association it should almost always be presented as budget vs actual — budget, actual, and a variance column for the month and for the year to date. Without the budget columns it is a list of numbers with nothing to argue against.
Basis of accounting decides when those numbers appear. Accrual basis records income when it is earned and expenses when they are incurred, regardless of when cash moves. Cash basis records income when the money arrives and expenses when the check clears. Modified cash basis sits between them, typically accruing assessments receivable while leaving other items on a cash footing. Monthly packages should be on the accrual basis at least for assessments, because that is the only way receivables and prepaid assessments show up at all — a cash-basis statement simply cannot tell a board that owners are behind. Year-end reports and tax filings are often prepared on a cash or modified cash basis where the statute or the documents allow it; the important thing is that the basis is stated on the face of the statements and does not change from year to year without the board knowing.
Three lines get read first.
Assessment income against budget. In an accrual package this line should be close to budget every month, because assessments are billed on a schedule rather than collected on one. A shortfall here means credits, waivers or billing errors, not slow payers — slow payers show up in receivables.
The reserve contribution actually transferred. The budget has a reserve contribution line. The question is whether the cash moved from the operating account to the reserve account this month. A budgeted contribution that never leaves the operating account is a reserve plan on paper only.
Contingency and miscellaneous. These are the lines that absorb whatever does not fit elsewhere. A miscellaneous expense line with real money in it is a coding problem, an approval problem, or both, and it is worth asking for the detail behind it.
Then compare year to date against annualized. Nine months of actual spending, projected across twelve, is a far better predictor of the year than the budget the board adopted last September. If you are building next year’s numbers from this comparison, the free HOA budget template for 2027 has an annualized column built for exactly that argument, along with a by-state table of who has to approve the budget once it is written.
One more line worth understanding before tax season: the income statement is where exempt-function income — assessments collected from members for the association’s exempt purposes — is separated from non-exempt income such as interest, laundry or rental revenue. That split drives the federal return, and the Form 1120-H instructions walk through the tests it feeds.
The supporting schedules: bank reconciliations, aging, reserve schedule
The supporting schedules are where the statements are proved, and a monthly package without them is not a financial package. Five belong in every board’s monthly packet.
Bank reconciliations, for every account, every month. A reconciliation ties the general ledger cash balance to the bank statement, item by item, and it is the single most effective anti-fraud control an association has. It only works if the person who prepares it is not the person who signs the checks and not the person who takes the deposits. Where a small board cannot separate those duties among staff, the separation has to come from a director — a treasurer who opens the bank statement independently, or a board member who reviews reconciliations and the check register together each month.
The accounts receivable aging. Owners’ balances grouped into current, 30, 60 and 90-plus days. The 90-plus column is the collections trigger: it is the point at which the association’s own collections policy, and in many states a statutory notice sequence, has to start. The aging total ties to the receivable on the balance sheet.
The reserve schedule. Component balances and the accumulated reserve balance compared against the reserve study’s funding plan — a reserve study being the engineering and financial analysis that lists each major component, its remaining useful life, its replacement cost and the annual contribution needed to fund it. The schedule answers whether the money on hand still matches the plan the board adopted.
The check register or disbursements list. Every payment made in the period, with payee, date, amount and account coded. Boards approve invoices; the register is how they confirm what actually went out.
The general ledger detail. The transaction-level backup behind every line on the statements. Nobody reads all of it. The board should be able to ask for it, and to get any single account’s detail without a negotiation.
If one of these is missing, ask for it in the meeting and have the request recorded in the minutes. The common answers — the software does not produce it, the bank statements arrive late, reconciliations are done quarterly — are all fixable, and none of them are reasons to accept a package without them. Associations that keep more cash in the operating account than they need often discover the problem here first; Dynamite Management, LLC publishes a guide to how much cash an HOA should keep in its operating account that covers the sizing question.
The monthly package, produced for you. HOA Fiscal is HOA management software for self-managed associations: fund accounting, owner payments, budgets, meetings, elections, violations, work orders, reserves and resale certificates. Fund accounting with GAAP statements, budget-vs-actual, bank reconciliation, aging and a board-ready monthly package are part of every plan — see plans and pricing or start a 30-day trial, no card required.
Compilation vs review vs audit: what each one actually buys
A compilation, a review and an audit are three different levels of CPA involvement, and the difference is the amount of assurance the accountant expresses. In a compilation, the CPA presents the association’s own figures in the form of financial statements and expressly provides no assurance on them. In a review, the CPA performs inquiry and analytical procedures and reports limited assurance — a statement that they are not aware of material modifications that should be made. In an audit, the CPA tests evidence and expresses an opinion on whether the statements are fairly presented in accordance with the applicable framework. Compilations and reviews are performed under the AICPA’s SSARS standards; audits are performed under GAAS.
That ladder explains the price differences and the delivery times, both of which depend on the size of the association, the number of bank accounts, the condition of the records and how much testing the scope requires. Get a written engagement letter with the fee and the delivery date before the work starts, and expect a well-kept set of books to cost less than a year of reconstructed ones.
Three situations justify a review even where no statute requires one. The first is a turnover — from a developer, from a management company, or from a treasurer who kept the books personally. The second is a suspicion of misappropriation, where the right first call is usually to counsel and the insurance carrier rather than to a CPA, because the scope of the engagement may need to change. The third is an external demand: a lender, a title company or a buyer asking for reviewed or audited statements before closing or funding.
When an auditor does arrive, the testing concentrates in four places. Cash — confirmations with the banks, the year-end reconciliations, and the transfers between funds. Receivables — the aging, the collectability of old balances, and whether prepaid assessments were classified as a liability. Disbursements — a sample of payments traced to invoices and to board approval, looking for authorization rather than for arithmetic. And reserve compliance — whether the money designated as reserves is actually there, and whether interfund borrowing was authorized and repaid.
Financial-reporting and audit requirements by state (2026)
Thirteen states set the duty three different ways: a revenue or assessment tier that decides whether a CPA compiles, reviews or audits the statements; an every-year requirement that ignores size; or a bare duty to keep records and hand owners a statement. Each row below was checked against the current section text on that state’s own legislature site on September 10, 2026, except Colorado, whose section was read on September 8, 2026 in the Office of Legislative Legal Services’ official Title 38 PDF.
| State | Act / who it covers | Year-end report the board must deliver, and when | CPA review or audit threshold | Can owners waive or lower it? | Cite |
|---|---|---|---|---|---|
| Arizona (planned community) | A.R.S. Title 33, ch. 16 — planned communities | An annual financial audit, review or compilation, completed no later than 180 days after fiscal year end and available on request to members within 30 days after completion | None — the requirement applies at any revenue level | No owner waiver; if the community documents require a CPA audit, that governs instead | A.R.S. 33-1810 |
| Arizona (condominium) | A.R.S. Title 33, ch. 9 — condominiums | Same: audit, review or compilation within 180 days, available on request to unit owners within 30 days after completion | None — applies at any revenue level | No owner waiver; a condominium-document requirement for a CPA audit governs instead | A.R.S. 33-1243(J) |
| California | Davis-Stirling Common Interest Development Act — all common interest developments | A copy of the review of the financial statement, distributed to members within 120 days after the close of each fiscal year by individual delivery under Civ. Code 4040 | A review prepared in accordance with generally accepted accounting principles by a licensee of the California Board of Accountancy for any fiscal year in which gross income to the association exceeds $75,000; no audit mandate at any level | No — the section yields only to governing documents that impose more stringent standards | Civ. Code 5305 |
| Colorado | CCIOA — communities created on or after July 1, 1992; §38-33.3-117(1.5) reaches pre-1992 communities from January 1, 2006 | Nothing in this paragraph; copies of the audit or review must be available to any owner no later than 30 days after it is completed | Audit only where annual revenues or expenditures are at least $250,000 and owners of at least one-third of the units request it; a review is required on a one-third request alone | Not a waiver — the owners’ request is the trigger, and without it neither is required | C.R.S. 38-33.3-303(4)(b) |
| Florida (HOA) | Ch. 720 — mandatory homeowners’ associations | Financial report prepared and completed within 90 days after fiscal year end; a copy, or notice that a copy is available free on request, within 21 days after completion and no later than 120 days after year end | Under $150,000, a report of cash receipts and expenditures; $150,000 to under $300,000, compiled; $300,000 to under $500,000, reviewed; $500,000 or more, audited; at least 1,000 parcels, audited regardless of revenue | Both directions: 20% of parcel owners may petition for a higher level, adopted on approval of a majority of the total voting interests; a lower level may be approved by a majority of the voting interests present at a properly called meeting, but not for consecutive fiscal years | Fla. Stat. 720.303(7) |
| Florida (condominium) | Ch. 718 — condominiums | Within 21 days after the final financial report is completed, and not later than 180 days after fiscal year end | The same four tiers: under $150,000 cash receipts and expenditures; $150,000 to under $300,000 compiled; $300,000 to under $500,000 reviewed; $500,000 or more audited | Yes — a majority vote of all the voting interests, taken before the end of the fiscal year, is effective only for that year, and an association may not do it for consecutive fiscal years | Fla. Stat. 718.111(13) |
| Illinois | Condominium Property Act; Common Interest Community Association Act for non-condominium associations | An itemized accounting of the preceding year’s common expenses supplied annually to all unit owners, showing the portions for reserves, capital expenditures, repairs and real estate taxes and the net excess or deficit; CICAA adds a reasonably detailed summary of receipts, common expenses and reserves | None — no audit, review or compilation threshold; an association of 100 or more units must use generally accepted accounting principles | Not applicable; a CICAA board may substitute a consolidated annual independent audit report of all fund accounts for the itemized accounting | 765 ILCS 605/18(a)(7), 605/18.10; 765 ILCS 160/1-45(b), (i) |
| Nevada | NRS ch. 116 — common-interest communities | This section sets no delivery clock; it fixes what the CPA must do each fiscal year | Annual budget $45,000 to under $75,000: CPA review in the year immediately preceding a reserve-study year. $75,000 to under $150,000: CPA review every fiscal year. $150,000 or more: CPA audit every fiscal year | No waiver — and owners can force more: 15 percent of the total voting members who file a written request within 180 days before fiscal year end compel an audit, except where the association is already in the audit band | NRS 116.31144 |
| North Carolina | Planned Community Act (post-1/1/1999 communities) and Condominium Act (post-10/1/1986 condominiums) | An annual income and expense statement and balance sheet available to all owners at no charge within 75 days after the close of the fiscal year | None at any revenue level | Owners can only raise it: a majority of the executive board, or a majority of owners present and voting at an annual or duly called special meeting, may require a compilation, review or audit | G.S. 47F-3-118(a); G.S. 47C-3-118(a) |
| Oregon | Planned Community Act (ORS ch. 94) and Condominium Act (ORS ch. 100) | An annual financial statement — a balance sheet and an income and expenses statement — prepared and distributed to every owner within 90 days after the end of the fiscal year | Where annual assessments exceed $75,000, that statement must be reviewed within 300 days after fiscal year end by an independent CPA licensed in Oregon under the AICPA’s SSARS | Yes — an association above the line may elect annually not to comply, by an affirmative vote of at least 60 percent of owners excluding the declarant’s votes; at or under $75,000, a petition signed by at least a majority of owners forces the review | ORS 94.670(4)–(7); ORS 100.480(4)–(7) |
| Texas (condominium) | Uniform Condominium Act, ch. 82 — including condominiums created before January 1, 1994, which §82.002© brings under §82.114 | Detailed financial records complying with generally accepted accounting principles; copies of the audit must be made available to unit owners | An independent audit of the records every year, as a common expense, at any size — performed by a CPA only if the bylaws, a board vote, or a majority vote of the members voting at a meeting requires it | No | Tex. Prop. Code 82.114(a), © |
| Texas (HOA) | Residential Property Owners Protection Act, ch. 209 — residential subdivisions, not condominiums | Nothing — the chapter requires records and access, not an annual report | None | Not applicable; financial books and records must be retained seven years under §209.005(m) | Tex. Prop. Code ch. 209 |
| Virginia | Property Owners’ Association Act | Detailed records of receipts and expenditures kept in accordance with generally accepted accounting practices, plus individual assessment account records; no annual report deadline in the section | None at any revenue level | Not applicable — nothing to waive | Va. Code 55.1-1815(A) |
| Washington | WUCIOA, ch. 64.90 RCW — communities created after June 30, 2018; RCW 64.90.365(1) extends this section to older associations | A financial statement prepared at least annually on accrual-based accounting practices; the section sets no delivery deadline | CPA audit at least annually where annual assessments are $100,000 or more | Yes, but only below the line: an association under $100,000 (as adjusted under RCW 64.90.065) also needs an annual audit, waivable annually by owners of units to which a majority of the votes are allocated, excluding the declarant’s | RCW 64.90.530 |
Georgia is not in the table: its Property Owners’ Association Act sets no reporting tier, and the row will be added once the Georgia post’s citations have been checked against the official code.
The pattern, and what it means for your calendar
The rows sort into four groups, and the group decides what a self-managed board should schedule.
In the revenue-tier states, the dollar figure decides the product. Florida is the most detailed version: audited financial statements at total annual revenues of $500,000 or more, reviewed statements from $300,000, compiled statements from $150,000, and a report of cash receipts and expenditures below that, under Fla. Stat. 720.303(7) for homeowners’ associations and Fla. Stat. 718.111(13) for condominiums. Dynamite Management’s Florida HOA laws guide walks both chapters section by section, including the four reporting tiers and the 120-day and 180-day deadlines. Washington keys off assessments rather than revenues, at $100,000 under RCW 64.90.530(2). California uses gross income: a review prepared in accordance with generally accepted accounting principles by a licensee of the California Board of Accountancy is required for any fiscal year in which gross income to the association exceeds $75,000, and the copy goes to members within 120 days after the close of the fiscal year (Civ. Code 5305) — California mandates no audit at any income level. Nevada keys off the annual budget in three bands: a CPA review in the year before a reserve-study year at $45,000 to under $75,000, a CPA review every fiscal year at $75,000 to under $150,000, and a CPA audit every fiscal year at $150,000 or more (NRS 116.31144(1)). Oregon requires an SSARS review by an independent CPA licensed in Oregon, within 300 days after fiscal year end, where annual assessments exceed $75,000 (ORS 94.670(5); ORS 100.480(5)).
Boards in these states should check the tier against next year’s budget in the fall, because crossing a threshold changes the engagement — and the fee — for a year that has not started yet. Two of the lines can be moved by owners. Washington’s waiver runs downward: it is the associations below $100,000 that can waive the annual audit by a vote of owners holding a majority of the votes, while those at or above the line get no waiver in the section at all. Oregon’s runs the same way — an association above $75,000 may elect annually not to obtain the review by an affirmative vote of at least 60 percent of owners, excluding the declarant’s votes (ORS 94.670(7); ORS 100.480(7)).
In the every-year-at-any-level states, size is irrelevant. Arizona requires an annual financial audit, review or compilation of every planned community and every condominium, completed within 180 days after fiscal year end, under A.R.S. 33-1810 and A.R.S. 33-1243(J). A ten-unit Arizona association needs an engagement letter every year. Because the statute lets the board pick among the three, most small associations pick a compilation — which is legitimate, and which is also why owners should understand that a compilation carries no assurance. Texas condominiums sit in the same group from the other direction: the association “shall, as a common expense, annually obtain an independent audit of the records,” and that audit must be performed by a CPA only if the bylaws, a board vote or a majority vote of the members voting at a meeting requires it (Tex. Prop. Code 82.114©). Dynamite Management’s Arizona HOA laws guide covers §33-1810 alongside the rest of the chapter.
In the on-request states, nothing happens until owners ask. Colorado requires an audit only where the association’s annual revenues or expenditures are at least $250,000 and owners of at least one-third of the units request it, and a review on a one-third request alone, with copies available to any owner no later than 30 days after completion (C.R.S. 38-33.3-303(4)(b)). Nevada layers a petition on top of its bands: 15 percent of the total voting members who submit a written request within 180 days before the end of the fiscal year compel an audit for that year, unless the association is already required to be audited (NRS 116.31144(2)). Oregon does the same below its threshold, where a petition signed by at least a majority of owners forces the review within 300 days (ORS 94.670(6); ORS 100.480(6)). If your board is in one of these states, the practical point is that a well-organized group of owners can put an engagement on next year’s budget whether the board planned one or not.
In the report-only states, the board owes owners statements and nothing more. North Carolina sets a hard clock — an income and expense statement and balance sheet within 75 days of year end, free, under G.S. 47F-3-118(a) and G.S. 47C-3-118(a) — and lets the board or the owners vote to add a compilation, review or audit. Illinois requires the board to supply every unit owner an annual itemized accounting of the preceding year’s common expenses, showing which portions went to reserves, capital expenditures, repairs and real estate taxes and the net excess or deficit (765 ILCS 605/18(a)(7)), with the same accounting owed to members under the Common Interest Community Association Act, where a board may instead provide a consolidated annual independent audit report (765 ILCS 160/1-45(b)); an Illinois association of 100 or more units must use generally accepted accounting principles in meeting any accounting obligation under its act (765 ILCS 605/18.10; 765 ILCS 160/1-45(i)). Virginia requires records kept in accordance with generally accepted accounting practices under Va. Code 55.1-1815(A) but sets no threshold. Texas Chapter 209 requires no annual financial statement at all for homeowners’ associations, only records, access and a seven-year retention period for financial books and records under §209.005(m). In each of them, the governing documents and the board’s own policy are the whole requirement, so read the declaration and bylaws before concluding that nothing is owed. For Washington’s version of these duties in context, Dynamite Management’s Washington HOA laws guide walks RCW 64.90 section by section.
Whatever group you are in, the statutory floor is not a target. A board that meets monthly and reads reconciliations, an aging and a budget-vs-actual is better protected than one that clears a revenue tier once a year.
What HOA Fiscal produces
HOA Fiscal produces full fund accounting with GAAP financial statements on every plan, along with budgets and budget-vs-actual reporting, bank reconciliation, aging and delinquency reporting, reserve studies and funding projections, and a board-ready monthly package. Assessments, special assessments, late fees and interest run through the same ledger, so the receivable on the balance sheet and the aging come from one set of records rather than two.
The Managed plan adds a named Dynamite Management financial manager who does the monthly close and reconciliations, codes and routes bills for board approval, escalates collections, prepares the budget, and acts as the association’s audit and CPA liaison. Dynamite Management, LLC provides remote financial management, accounting and Form 1120-H preparation for homeowner and condominium associations in every state. Form 1120-H is prepared by Dynamite Management from the association’s ledger — $175 a year on the Essentials and Automate plans, and included on the Managed plan.
If you are still choosing a system, the comparison of HOA accounting software covers eleven products, and the self-management guide covers the rest of the transition to running the books in-house.
What to do this month
- Pull the last three monthly packages and confirm each one contains a balance sheet by fund, a budget-vs-actual, a bank reconciliation for every account, an aging and a reserve schedule.
- Tie each cash line on the most recent balance sheet to the ending balance on that account’s reconciliation for the same date.
- Compare reserve cash to the reserve fund balance. If reserve cash is lower, find the interfund entry and ask when it will be repaid.
- Tie assessments receivable to the aging total, then read the 90-plus column against your collections policy.
- Confirm the budgeted reserve contribution actually moved to the reserve account in each month of the current year.
- Check whether prepaid assessments are sitting in liabilities rather than in income.
- Read your state’s row in the table above, then read the section it cites and your declaration, and put next year’s projected revenue against any threshold before the budget is adopted.
- If a compilation, review or audit is required or wanted, request engagement letters now — before year-end closing, not after.
Financial management for associations in any state. Dynamite Management does the administrative and financial work remotely — monthly close and reconciliation, bills coded and routed for board approval, collections, budget preparation and CPA liaison work on the Managed plan. See how it works, or run the books yourself in HOA Fiscal — plans start at $89 a month, the trial is 30 days, and the free HOA Budget Tool is open to anyone.
Frequently asked questions
What financial statements should an HOA provide?
A balance sheet by fund, an income statement presented as budget vs actual, and supporting schedules: a bank reconciliation for every account, an accounts receivable aging, a reserve schedule, a check register and general ledger detail on request. That package should reach the board monthly. Some states also require a specific year-end report — North Carolina, for example, requires an annual income and expense statement and balance sheet within 75 days after the close of the fiscal year under G.S. 47F-3-118(a).
What is the difference between an HOA balance sheet and income statement?
The balance sheet reports what the association owns and owes at a single date; the income statement reports what it earned and spent over a period. The balance sheet carries cash, receivables, payables, prepaid assessments and each fund’s fund balance. The income statement carries assessment income and expenses against budget. The two connect: the period’s surplus or deficit changes the fund balance on the balance sheet.
Does an HOA need an audit?
In several states, yes, once the association crosses a dollar figure set by statute; in others, no statute requires one at any size. Florida requires audited financial statements at total annual revenues of $500,000 or more, or at 1,000 or more parcels regardless of revenue (Fla. Stat. 720.303(7)). Washington requires a CPA audit at least annually where annual assessments are $100,000 or more (RCW 64.90.530(2)). Nevada requires a CPA audit every fiscal year once the annual budget reaches $150,000 (NRS 116.31144(1)©), and Arizona requires an audit, review or compilation every year at any revenue level (A.R.S. 33-1810). California requires a review rather than an audit above $75,000 of gross income (Civ. Code 5305), and Colorado requires an audit only at $250,000 of annual revenues or expenditures and a request by owners of at least one-third of the units (C.R.S. 38-33.3-303(4)(b)). North Carolina, Virginia, Illinois and Texas homeowners’ associations set no threshold at all.
What is the difference between an HOA audit, review and compilation?
A compilation presents management’s figures as financial statements with no assurance; a review provides limited assurance through inquiry and analytical procedures; an audit provides an opinion after the CPA tests evidence. Compilations and reviews are performed under the AICPA’s SSARS standards and audits under GAAS. The cost and the time rise with the level, because the amount of work rises with it.
Should an HOA use cash or accrual accounting?
Use accrual accounting for the monthly package, at least for assessments. Accrual records income when earned and expenses when incurred, which is the only way assessments receivable and prepaid assessments appear on the balance sheet at all; a cash-basis statement cannot show the board who is behind. Year-end reports and tax returns are often prepared on a cash or modified cash basis where the statute and governing documents allow it, but the basis must be stated on the statements and applied consistently.
How often should an HOA board review financial statements?
Monthly, at a board meeting, with the reconciliations in front of the board rather than filed elsewhere. Monthly review is what makes a bank reconciliation an actual control: a missing deposit or an unfamiliar payee is obvious within thirty days and nearly invisible at twelve months. Where a board meets quarterly, it should still receive and read the monthly packages between meetings.
What is fund accounting for an HOA?
Fund accounting keeps separate self-balancing sets of accounts for money with different purposes — typically an operating fund, a reserve fund, and sometimes a special-assessment fund — each with its own assets, liabilities and fund balance. It exists so that reserve money can be distinguished from operating money on the face of the statements. When one fund holds cash belonging to another, an interfund due to and due from records it, and those two amounts must always net to zero.
How much does an HOA audit cost?
The fee is set by the size of the association, the number of bank accounts and funds, the condition of the records and the level of service — a compilation costs less than a review, and a review less than an audit. Books that are reconciled monthly cost less to audit than books that have to be reconstructed first. Ask two or three firms for an engagement letter stating the fee, the scope and the delivery date before the fiscal year closes.